Topic 20 - Other Mortgage Products Flashcards
1
Q
Foreign currency mortgage:
A
- Mortgage arranged in a foreign currency and secured on a UK property
- Repayments are made in a foreign currency
- Interest rates are determined by the rates applicable to that currency in the country it is used
- £250,000 minimum loan in most cases
- MCD usually requires additional warning in ESIS on the impacts of fluctuations in different currencies
2
Q
Sub-prime mortgage:
A
- Made to credit-impaired borrowers.
- Interest rates are higher than those for prime borrowers.
- Arrangement fees tend to be higher than those for prime borrowers.
3
Q
Guarantor mortgage:
A
- Allows higher lending than a standard mortgage.
- Lender will require evidence that the guarantor can afford their own commitments as well as payments on the guarantor mortgage.
- Guarantors over 65 will not usually be considered.
- Guarantors can deposit savings as additional security.
4
Q
Business BTL:
A
- For those looking to use property as investment. At least 40% of the land should be used in connection with a dwelling.
- Lending is normally limited to 80% of the property valuation.
- Lenders usually insist that a BTL borrower already owns their main residence, and sometimes at least one another property.
- Lenders typically require a minimum gross income of £20-25k.
5
Q
ICR:
A
Rent after tax and running costs divided by mortgage costs.
Used to determine affordability of a BTL.
6
Q
Why does a BTL mortgage represent a greater risk to a lender?
A
- There is no guarantee that the property will be permanently tenanted.
- The borrower may treat the financial commitment less seriously than if the property were their own home.
- The value and sell-ability of the property may be adversely affected if it is badly treated by tenants and not adequately maintained by the borrower.
7
Q
Expenses deductible from rental income:
A
- Repairs and maintenance
- Insurance
- Letting agent fees
- Ground rent and service charges
- Costs of replacing furnishings
